INVISTA Equities LLC Ratings Affirmed On Successful Apparel and Advanced Textiles Spin Off

  • INVISTA Equities LLC has successfully completed the spin off of its apparel and advanced textiles business. We assigned ratings to this business in 2018 as Eagle Super Global Holding B. V. (d/b/a The LYCRA Co.) (B/Stable/--).
  • We affirmed our 'BB+' issuer credit rating on INVISTA Equities and all issue and recovery ratings. Our rating continues to benefit from our view of INVISTA's strategic importance to Koch Industries Inc., the ultimate owner of INVISTA.
  • We believe the company's business will lose some diversity without the apparel and advanced textiles business; but overall, we believe some favorable operating trends and demand strength for the retained nylon 6,6 business will offset a meaningful portion of this loss.
  • The stable outlook reflects our expectation that the sale of the company's apparel and advanced textiles business will not hinder its performance and that it can effectively manage a more concentrated commodity business profile. We expect the weighted-average ratio of funds from operations (FFO) to total debt to be in the 30%-45% range, which we consider appropriate for the rating.
NEW YORK (S&P Global Ratings) Feb. 4, 2019—S&P Global Ratings today took the 
rating actions listed above.  INVISTA Equities has successfully closed the 
sale of its apparel and advanced textiles business, Eagle Super Global Holding 
B. V. (d/b/a The LYCRA Co.; B/Stable/--), to majority owner, Shandong Ruyi 
Technology Group (B/Stable/--) and other investors. LYCRA represented around 
30% of INVISTA Equities' 2017 EBITDA; however, we expect the percentage to be 
smaller in 2018 and in the forecasted years as the company's retained business 
has benefitted from beneficial nylon industry trends.  

The stable outlook reflects our view of INVISTA, without the apparel and 
advanced textiles operating segment. Our outlook is predicated on supportive 
demand growth trends, including positive GDP growth in the key U.S. market, 
where the company generates a substantial portion of its revenues. We also 
assume steady GDP growth in its Asian markets, where the company generates a 
large portion of its revenue. In the next 12-24 months, we anticipate 
relatively stable oil prices, with 2019 and 2020 West Texas Intermediate (WTI) 
prices of about $50 per barrel. This should result in relatively stable prices 
for the company's large commodity inputs. In our base-case scenario we do not 
assume the unexpected volatility of 2015, when oil prices dropped sharply and 
EBITDA declined more than 30%. We consider a weighted-average FFO-to-debt 
ratio of 30%-45% over the next 12 months as appropriate for the ratings. 

We could lower the ratings in the next 12 months if a severe economic downturn 
or poor industry conditions cause free operating cash flow to be significantly 
negative for an extended period, without any offsetting cash inflows, 
stressing cash flow and leverage measures more than we expect, or 
significantly eroding liquidity. We could lower the ratings if additions to 
debt for capital expansion, for example, arose such that FFO to debt appears 
likely to drop and remain below 30%. Although unlikely given our current 
assessment of INVISTA's relationship to its corporate group, a downgrade could 
also occur if we no longer believe INVISTA is strategically important to Koch. 

The company's use of cash proceeds will play an important role in our review 
of ratings. We could raise ratings over the next 12 months if the company 
reduces debt and does not replace it, while at the same time maintaining at 
least current operating performance. Similarly, we would have to believe there 
was no major deterioration in the company's businesses assessment. For an 
upgrade, we would need to believe FFO to debt will likely remain above 45% on 
what we would consider a sustainable basis. Successful longer-term capital 
expansion or new product introductions could also enhance the business or 
financial risk profiles, prompting us to raise the ratings. We would also have 
to believe management has a strong commitment to investment-grade financial 
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